Halloween 2008

Thoughts

The following is by Dick Arms who
has been good on the market action this year:

On the first chart, I have
placed an ellipse over the last few entries of the moving average
convergence/divergence (MACD), across the top, and labeled it a crossover. That
is an important development. This indicator has been in a bearish mode since
early September, but has now gone bullish. It reinforces my belief that we saw
an extremely important low on Oct. 10. Since then, we have tested the level and
built a substantial base. We still have a very nervous and ambivalent market,
as can be seen in the numerous wide and seemingly irrational swings. But there
now appears to be a tendency to move prices higher.

What we appear to have gone
through is a traditional panic low. In the past, such moves have led to very
profitable advances. The Arms Index moving averages have moved away from their
extreme readings, as immense numbers are replaced with more rational ones. But
we are still well into oversold territory, suggesting there is a rally ahead.
On the low, I was saying to go in the direction of the panicking public. I
still think it is a time to be buying.

*****

Asian markets were mixed
overnight with Japan down 5% and India up 8%.

Japan is 20% above the twenty six
year low made on Monday. Volatility anyone?

European bourse indexes are about
1% lower at midday. U.S. stocks opened lower but the major measures are now
plus after one half hour of trading. Gold is down $7 and Oil is $2 lower.
Treasuries are flat.
*****

Credit Suisse analyst Philip
Winslow says Symantec missed his
revenue and deferred revenue estimates, as recent exchange movements, combined
with a slowdown in consumer spending, drove the majority of the shortfall.
Winslow says the impact from forex to deferred revenue meaningfully depressed
operating cash flow during the quarter, and negative impact should follow
through into the third quarter; the company expects forex to negatively impact
revenue by more than $100 million and EPS by $0.04-$0.05. He cuts his $1.55
fiscal year 2009 EPS estimate to $1.43 and $6.55 billion revenue forecast to
$6.17 billion He keeps $20 price target and outperform rating on the stock.
*****

Sprint Nextel on Thursday said it would retain its Nextel National
Network and extend its network partnership with Motorola. The cell phone
carrier said in a news release Thursday that Motorola, as part of an extended
long-term partnership with Sprint, will continue to provide enhanced network
and infrastructure support, such as software upgrades. The so-called iDEN
network offers push-to-talk features through Nextel Direct Connect. Sprint said
it will offer more handsets that use Nextel Direct Connect, starting on Sunday,
when it launches the Motorola i576, and later this year the BlackBerry Curve
8350i smart phone. Sprint said it plans to launch eight new Nextel Direct
Connect handsets in 2009, five in the first half of the year. Sprint also said
Thursday it would refocus its prepaid business, called Boost Mobile, to compete
for customers suffering in the weak economic environment. The company said it
would offer a lower per-minute rate and other options.
*****

We sold Wintrust
for a $3 profit and bought Sun Micro
in accounts. JAVA is down 20% today (70 pennies) on a bad earnings report. We
also repurchased CIEN and JDSU after earnings reported in the
last few days.*****

First American CoreLogic, a
real-estate data firm based in Santa Ana, Calif., estimated that 48% of owners
of single-family homes with mortgages in Nevada are under water. That compares
with 18% nationwide.
*****

Gold ended down $14 at $725 and
Oil was up $1.50 at $67.60. Treasuries were weaker with the ten-year at 3.96%.
European bourse indexes closed 2% higher.
*****

The DJIA closed up 150 at 9325.
The S&P 500 gained 15 to 970 and the NAZZ jumped 22 to 1720.

Breadth was 3/1 to the good and
volume was active but below recent levels.

There were about 205 combined new
lows and about 15 combined new highs.

The bulls won the day and the week with the S&P 500 up
10%.The bears won the
month with the S&P 500 down 17%. Thankfully the month is over.
*****

30 October 2008

Thoughts

World markets were up overnight
and U.S. markets are following or leading as the case may be. Oil is one dollar
higher and Gold has added sixteen dollars this morning in the early going.
*****

Motorola reported better than or less than depending on how one
interprets the numbers. The reality is that everything outside of cell phones
is doing fine. MOT is delaying the disposal of the cell phone division given
economic conditions i.e. they can’t sell it. At $5 the stock is cheap and we bought some more today on
a 5% drop in price.*****

Symantec disappointed on revenues going
forward and is off 10%. We are adding more to accounts today.*****

We continue to add shares of William Sonoma.
*****

The last minute collapses ala
yesterday are disconcerting but must be ignored. The SEC does not want to
reinstitute the uptick rule since their studies show the uptick rule doesn’t
matter. Of course the markets are telling otherwise but then when has the SEC
ever listened to the markets. The academic studies say the 3 minute 4% moves
are just normal occurrences and so we had better get used to the ridiculous
moves because the SEC has spoken.
*****

The Commerce Department reported
today that the GDP - the broadest measure of economic health- fell at an annual
rate of 0.3 percent in the July-September period…
*****

We took our three day 8% profit in the Bank SPDR (KBE).*****

European stocks pared gains but closed higher overall Thursday due to
growing hopes that falling interest rates could help the global economic
outlook and in turn the performance of major indexes.*****

Oil finished down $2 at $65.45.
Gold dropped $18 to $735. Treasuries were weaker with the ten-year at 3.95%.
*****

Same old same old in the final
hour as the DJIA moved 5% up and down and finally up.
*****

The DJIA closed up 190 points at
9180. The S&P 500 gained 24 to 955 and the NAZZ jumped 42 to 1700.

Breadth was 3/1 to the good on
the NYSE and 2/1 on the NAZZ and volume was active at 6 billion on the NYSE but
lower than it has been.

There were about a combined 250
new lows and about 15 combined new highs.

The bulls held serve today or maybe the big boys and girls
were just having fun as the pump today in the final half hour was the same as
the dump yesterday in the final 3 minutes. Of course since we are long it is OK
to pump anytime they wish.*****

29 October 2008

Thoughts

Asian markets were mostly higher
overnight with Japan up 7%. China and South Korea were lower. European bourse
indexes are higher at midday with Germany the only one down (2%) which is
actually higher given the goofy Volkswagen price action of yesterday.

U.S. markets opened higher and
are holding ahead of the Fed minutes at 1:15pm.The markets want at least 50 bps cut and would move higher with a 75 bps
cut. But as a perceptive person said, 75bps would not leave the Fed much room
since the rate would then be at .75%.
*****

We took our gain in AT&T
to raise a bit of cash with the 10% market jump and we are buying the SPDR financial and Symantec in some accounts. We also added a package of low priced
retail stocks Saks, Liz Claiborne and Dillard’s plus the New York
Times and Evergreen Solar to
some accounts.

*****

The bounce yesterday is being
treated by the media and the gurus as a bull trap i.e. a rally in a bear
market. We are agnostic. We are trading around our positions to get set for the
longer term. Verizon an AT&T were very large holdings and
thus were prime stocks to cash on the 10% move higher. Other stocks we own
jumped the same percent or more but the stocks we are holding and adding to
have better percentage gain potential than the T and VZ. Should markets head
lower we will revisit T and VZ.
*****

Williams Sonoma lowered sales and earnings estimates for the third
and fourth quarter and the shares are off $2 today. That is the danger of
trying to catch falling knives and one reason we reduced our WSM position on
Monday. We reduced our J Crew position Monday and today.With the money from today’s JCG sale we
repurchased Broadcom which held up
well in last week’s sell off.
*****

The goblins returned at 2:55pm
and the major measures dropped 2% in two minutes and then another 2 % in the
last three minutes before bouncing 1% on market on close orders. The big boys
and girls had their trick or treat fun early.

At the bell the DJIA was down 77
points at 8990. The S&P 500 lost 10 to 930 and the NAZZ was up 8 at 1658.

Breadth was 2/1 positive and
volume was 7 billion on the NYSE.

There were about 320 combined new
lows and 21 combined new highs.

The hedgie bears won the tussle.*****

28 October 2008

Thoughts

Monday was a decent day in the
U.S. markets until there were 5 minutes left in the trading day. Then the big
boys and girls initiated sell programs and pushed the DJIA down 200 points. Hong
Kong was down 125 and Japan hit a 26 year low on Monday and European markets
also dropped big-time. US markets were down 2 % to 3% and oil dropped $1.50.

But that was yesterday and today
is a new day. Japan rallied overnight as the yen value against the euro dropped
on intervention and overseas markets took the cue with Asian markets ending
higher and European bourse indexes higher at midday.

The DJIA opened 300 points higher
this morning and now we will see if the bulls have any legs left to stand on.
Since it is turnaround Tuesday there may be a chance.

By the way, today is the
anniversary of Black Tuesday in 1929 when the markets crashed for the second
day in a row and helped to create some of the conditions that led to the Great
Depression.
*****

We used the pop in Verizon
to sell (we still own AT&T in the telephone stocks) so that we could use
the money to diversify into the depressed major bank stocks. We increase our
diversification and only surrender of yield since the KBE currently yields
5.4%. Of course some of the bank dividends will be (should be) cut. We bought the SPDR Major Banks stocks ETF (KBE):

Yesterday we sold portions of J Crew and Williams Sonoma
since we decided we were over invested in retail. We reinvested the Williams
Sonoma money in Intel and the J Crew
money in Dell.*****

There was a short squeeze of
monumental proportions in Volkswagen stock overnight as VW’s share price
quadrupled. The jump in the share price of VW accounted for 12% of the 10% rise
in the German DAX Index. The DAX would have been down 2% without that move.
Volkswagen market value exploded from $75 billion $280 billion in one day and
David Faber is reporting on CNBC that hedge funds lost $30 billion.

Today was just your usual 1000 points move on the DJIA, the
only difference that is that it was all to the upside. We’ll take it.

The DJIA jumped 900 points to 9070. The S&P 500 rose 90
to 940 and the NAZZ was up 143 to 1650.

Breadth was 3/1 positive and volume was active at 7 billion
on the NYSE.

There were 5 new highs and 1200 new lows.

The bulls won.*****

27 October 2008

Thoughts

We are traveling today to attend our Uncle’s funeral but
will be back in the office tomorrow. The traveling time offers the opportunity
for reflection, which we did all weekend. We are going to do a bit of
tightening of positions but we continue to believe we own good stocks at value prices. We have enough funds for
clients who need withdrawals and expect to be well rewarded for the risk we
have assumed the past two weeks.*****

24 October 2008

Thoughts

The Crash is upon us. The panic
is now worldwide and will have to work itself out. Global markets are down 8%
and U.S. futures are halted limit down until the opening in NYC at 8:30. If the
DJIA drops 10% trading will be stopped for a period of time. We don’t make
light of what is occurring but there is little we can do about it. In a perfect
would we would have waited until this morning to do our buying. In the short
term we will see our accounts erode. But, we own good companies at good prices
but in a panic like this that doesn’t mean our share prices will not drop.
*****

With the continued sell off we are consolidating. We sold
Walgreen, EMC, ERIC, RFMD, ALU, JDSU, TLAB
and Starbucks this morning to
raise cash for buying other (lower P/E, more gain potential, or better quality)
issues in any further pullback. We hope we are wrong. We are looking at adding to DELL, Williams Sonoma, Cisco, Intel, SPDR
Financials, Whole Foods, Motorola, Sun Micro, Williams Sonoma and Broadcom.
*****

The DJIA was down 500 at the
opening and at 11 am has rallied back to down 100.
*****

Gold has reversed and is now up
$25. Russia and underwater European hedged funds are probably finished for now
at least.
*****

PNC Financial, taking advantage of capital being raised from the
U.S. Treasury Department's rescue plan, said it will buy National City for $5.58 billion in
cash and stock. That works out to $2.23 per share and is a sorry commentary on
the goofs who ran National City into the ground and walked away with millions
of dollars.
*****

European bourse indexes ended 5%
lower.
*****

We added Williams
Sonoma at $9.70 which is a ten year low to accounts with the Eriksson money.*****

Gold closed up $15 at $730.
Oil was down $3.17 at $64.38. Treasuries were
weaker after the Crash didn’t occur.
*****

The program traders knocked the
DJIA down 150 points on the close.

The DJIA closed down 320 points
at 8375. The S&P 500 lost 32 to 876 and the NAZZ was down 50 at 1550.

Breadth was 4/1 negative and
volume was active at 7 billion on the NYSE.

There were about 2080 combined
new lows and about 25 combined new highs.

The bears remain in charge.
*****

23 October 2008

Thoughts

We are held up on our travels but
given the market action we thought we ought to offer our views.

The continuation of the
volatility is not investors’ selling it is the result of the big boys and girls
unwinding their quant hedges into markets with no liquidity. Stocks have the
greatest liquidity of all the various markets at this time and so the hedge
funds sell what they can, not what they want.

The fact that Oil was down $5
yesterday and Gold down $30 yesterday and $20 today, coupled with the collapse
of the euro against the dollar suggests that some of the smart boys and girls
have the same problem that Long Term Capital Hedge Fund had in 1998. Until the
hedge fund community is reduced the volatility will probably continue but the
fact is that stocks are at real value now.

Investors Intelligence had 22%
bulls and 54% bears last week even after the rally. That suggests pervasive
fear. Buy fear and sell greed.
*****

Asian markets were much lower
yesterday and today and European bourses also sold off. The 500 points drop in
the DJIA was not fun but the daily mini crashes are cleaning out the hedge
funds which are necessary to get back to an investment atmosphere. Gold is down
at $710 today and oil is up $1 at $68.
*****

Jobless claims were up 13,000 to
478,000.
*****

Now he tells us. From the AP:

Alan Greenspan said Thursday that the current financial
crisis had uncovered a
flaw in how the free market system works that had shocked him. Greenspan told
the House Oversight Committee on Thursday that his belief that banks would be
more prudent in their lending practices because of the need to protect their
stockholders had proven in the latest crisis to be wrong. Mr. Greenspan said he
had made a “mistake” in believing that banks in operating in their
self-interest would be sufficient to protect their shareholders and the equity
in their institutions. Mr. Greenspan said that he had found “a flaw in the
model that I perceived is the critical functioning structure that defines how
the world works.”

*****

We sold Sony
for a loss to buy GE yielding 6% and
EMC (both down a greater % than Sony)
with the money.To improve quality we
sold GM for a small profit and
placed the funds in NVDIA at $6.75
which has no debt, $3 a share in cash, priced at ˝ of revenues and 4 times cash
flow, and is down from $35 this year.*****

Stocks opened higher, then moved
lower and then moved 260 points higher by 11am. At noon they are in negative
territory.
*****

According to Bloomberg: Goldman Sachs is going to fire 3,200
souls, or 10 percent of staff, as the revenue outlook worsens, according to a
person briefed on the plan who declined to be identified. The cuts add to more
than 130,000 jobs eliminated in the financial industry since mid-2007, eclipsing
the 83,000 lost after the Internet bubble burst in 2001. Goldman had 32,569 employees at
the end of August, up 3 percent from May and 9 percent for the year.
*****

With two hours of trading
remaining the DJIA is down 220 points.
*****

Gold closed down $20 and Oil
jumped $2.44 to $69. Treasuries had a bid and European bourse indexes closed
down 2% and lower.
*****

Down 100, up 260, down 250 and into the last hour up 50,
down 50, up 50, down 200, down 50, down 150 and closed up 170 . A 2400 points
intraday move makes no sense.*****

The DJIA closed up 172 at 8690.
The S&P 500 rose 10 to 911 and the NAZZ dropped 10 to 1603.

The internal numbers are
meaningless.

Every investor is a loser on days with this type of
volatility.*****

22 October 2008

Thoughts

We have to make a quick run to
visit our sick uncle. We will post tomorrow. Keep the faith. We own good stocks
at good prices.
*****

21 October 2008

Thoughts

Stocks are going to open lower
this morning as yesterday’s rally is sold. Overnight Asian markets were mixed
while European bourse indexes are higher at midday. Gold is down $10 and oil is
off $2.
*****

The WSJ reports that a few months
ago, parts of the $14 billion global seaweed market started soaring. The price
for a key type of Indonesian seaweed suddenly more than tripled, to as much as
18,000 rupiah (or $1.80) per kilogram, from about 5,000 rupiah.

Then, just as quickly, the
seaweed bubble burst, adding the spindly plant to the long list of the world's
assets -- including oil, stocks and houses -- that have tumbled in value. By
early September, prices skidded to 12,000 rupiah. By October, they were down to
10,000, and they may be headed lower.
*****

We sold Bristol
Myers for a small profit and added Whole
Foods to some accounts at $12.50 on an analyst downgrade. The analyst had
recommended WFMI as a buy 5 weeks ago when the shares were selling at $ 18 per
share.*****

Oil ended down $3 at $70.90. Gold
dropped $15 to $775. European bourse indexes lost gains to close lower as the
U.S. markets were down 2% when European bourses closed.

Entering the final hour of trading the DJIA was unchanged
after being down over 200 points at noon.*****

The DJIA closed down 230 at 9033. The S&P 500
lost 30 to 950 and the NAZZ drooped 75 to 1696.

Breadth was 2/1 negative and
volume was moderate at 70% of the recent figures.

There were 235 combined new lows
and 15 combined new highs.

The bears won the day.
*****

20 October 2008

Thoughts

Overseas markets were higher
overnight and U.S. markets are opening higher as the trading week commences. We
would expect a pullback early on and then the real fun will begin.

The best scenario would be for
the stock markets to mill around the present level through the end of the month
and work off some of the volatility we have seen the pas few weeks. Of course
the markets rarely make it quite so easy.
*****

Gold is up $4 and Oil is up $2 in
the early going. Treasuries are flat.
*****

We are spending the day reviewing accounts and adding a
few retail shares as warranted.
*****

France closed up 4% with Germany
up 3% and London up over 1%.
*****

Gold gained $7 to $795. Oil was
up $2.60 to $74.40. Treasuries lost a few ticks.
*****

Today’s rally was low volume and so
it is suspect and could reverse tomorrow.

The DJIA closed up 400 points at
9260. The S&P 500 gained 45 to 985 and the NAZZ jumped 60 to 1770.

Breadth was 3/1 positive and
volume was light.

There were about 195 combined new
lows and about 15 combined new highs.

The bulls won.
*****

17 October 2008

Thoughts

We take the Warren Buffet mania with a few grains of salt
but when he agrees with us- or we agree with him – we present his views.

From today’s NYT 10/17/08:
Buy
American. I Am.

By WARREN E. BUFFETT

Omaha

THE
financial world is a mess, both in the United States and abroad. Its problems,
moreover, have been leaking into the general economy, and the leaks are now
turning into a gusher. In the near term, unemployment will rise, business
activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking
about, in which I previously owned nothing but United States government bonds.
(This description leaves aside my Berkshire Hathaway holdings, which are all
committed to philanthropy.) If prices keep looking attractive, my non-Berkshire
net worth will soon be 100 percent in United States equities.

Why?

A
simple rule dictates my buying: Be
fearful when others are greedy, and be greedy when others are fearful. And
most certainly, fear is now widespread, gripping even seasoned investors. To be
sure, investors are right to be wary of highly leveraged entities or businesses
in weak competitive positions. But fears regarding the long-term prosperity of
the nation’s many sound companies make no sense. These businesses will indeed
suffer earnings hiccups, as they always have. But most major companies will be
setting new profit records 5, 10 and 20 years from now.

Let
me be clear on one point: I can’t predict the short-term movements of the stock
market. I haven’t the faintest idea as to whether stocks will be higher or
lower a month — or a year — from now. What is likely, however, is that the
market will move higher, perhaps substantially so, well before either sentiment
or the economy turns up. So if you wait for the robins, spring will be over.

A
little history here: During the Depression, the Dow hit its low, 41, on July 8,
1932. Economic conditions, though, kept deteriorating until Franklin D.
Roosevelt took office in March 1933. By that time, the market had already
advanced 30 percent. Or think back to the early days of World War II, when
things were going badly for the United States in Europe and the Pacific. The
market hit bottom in April 1942, well before Allied fortunes turned. Again, in
the early 1980s, the time to buy stocks was when inflation raged and the
economy was in the tank. In short, bad news is an investor’s best friend. It
lets you buy a slice of America’s future at a marked-down price.

Over
the long term, the stock market news will be good. In the 20th century, the
United States endured two world wars and other traumatic and expensive military
conflicts; the Depression; a dozen or so recessions and financial panics; oil
shocks; a flu epidemic; and the resignation of a disgraced president. Yet the
Dow rose from 66 to 11,497.

You
might think it would have been impossible for an investor to lose money during
a century marked by such an extraordinary gain. But some investors did. The
hapless ones bought stocks only when they felt comfort in doing so and then
proceeded to sell when the headlines made them queasy.

Today
people who hold cash equivalents feel comfortable. They shouldn’t. They have
opted for a terrible long-term asset, one that pays virtually nothing and is
certain to depreciate in value. Indeed, the policies that government will
follow in its efforts to alleviate the current crisis will probably prove
inflationary and therefore accelerate declines in the real value of cash
accounts.

Equities
will almost certainly outperform cash over the next decade, probably by a
substantial degree. Those investors who cling now to cash are betting they can
efficiently time their move away from it later. In waiting for the comfort of
good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck
is going to be, not to where it has been.”

I don’t like to opine on the
stock market, and again I emphasize that I have no idea what the market will do
in the short term. Nevertheless, I’ll follow the lead of a restaurant that
opened in an empty bank building and then advertised: “Put your mouth where
your money was.” Today my money and my mouth both say equities.
*****

Buffet surely is a long term investor. We have successfully
traded the markets for years. But in looking back at our actions we have noted
that there were times, 1974, 1987, 1990, and 2002 when we should have hung up
our trading boots and put on investor boots. If it is true that folks should
learn from their mistakes- actually they weren’t mistakes since we profited in
all those crash/corrections but we did leave a lot of money on the table- then
we think the present is a time to buy good stocks and hold on. That is what we
are doing.

*****

Tellabs, the telecom supply company, is being priced in the marketplace at $1.35
billion. The Company has a net $1.15 billion in cash. Thus the entire company
with over $1.7 billion in sales is selling for less than its yearly cash flow
of $250 million. TLAB earns money. It makes stuff for the telecom industry. We
are buying more. We also added Sprint to accounts and we have been reviewing
individual portfolios and adding shares over the last few days.*****

Stocks opened lower this morning
but as the Buffet Op-ed makes the rounds stocks are rallying. Moreover, the
central Banks will probably begin formalizing the bank capital infusion plans
this week end and we think traders will be loathe to go home short.

Asian markets were mixed
overnight with Hong Kong down 4% and Japan up 2%.Eurpoepan bourse indexes are
higher although off their highs and Oil is $68 with Gold under $800.
*****

Google beat last night as did AMD
and both are higher this morning.
*****

As the trading day ends the DJIA is up 100. It was down
200 to begin the day and then rallied to up 300 before pulling back and moving
to down 100 at 2:25pm back to even at 2:45pm and down 150 at the close, just
the same old same old 1400 point (15%) move over the trading day. *****

European bourse indexes closed 4%
and higher on the day.
*****

The DJIA was up 900, down 100, down 700, up 400 and up
300 to end the week. On top of the 21% drop last week and the 1400 points move
on Friday last, the last two weeks have been numbing.*****

Oil ended at $72.72 up $2 and
change. Gold dropped $28 to $786. Treasuries were flat with the two-year at
1.61% and the ten-year at 3.95%.
*****

The DJIA closed down 150 points
at 8850. The S&P 500 lost 6 to 940 and the NAZZ was down 7 at 1710.

Breadth was 5/4 positive on the
NYSE and the reverse on the NAZZ and volume was active.

There were 330 new lows and 35
new highs.

Today was a tie. Good night and good luck.
*****

16 October 2008

Thoughts

Asian markets were lower with
Japan down 11% after being 14% higher on Tuesday. European bourse indexes are
2% to 4% lower at midday.

Oil is under $70, so much for
demand and not speculation raising the price. The story of the oil bubble is
going to be as damning to the Bush administration as the pump in the price of
electricity in 2001. Criminal.

Stocks were expected to open
higher and did by a bit bur soon moved down 400 points on the DJIA to the 8000
level reached last Friday. From there they rallied back to plus at 11:45am but
are now lower at noon.

We don’t like
seeing the value of accounts bomb like they did yesterday but we firmly believe
that we are acquiring great investments at excellent prices.

The big boys and girls are
playing their games and the matches they are playing with are burning more than
a few, so much for 2% plus 20% and the investors who thought the risk and the
price were worth it. Wrong.
*****

European bourse indexes closed
down 5% to 6% on the day.
*****

Oil closed at $70 down $4.60.
Gold dropped $30 to $804. Treasuries had a bid.
*****

Tomorrow is options expiration so
anything goes. The range on stocks today was another 1000 points.

The DJIA after dropping 400 in
the morning and touching the 8000 level again as it did last Friday rallied to
close up 400 points at 8980. The S&P 500 gained 40 to 946 and the NAZZ
jumped 90 to 1717.

Breadth was 2/1 to the good at
the close and volume was active.

There were about 1000 combined
new lows and about 10 combined new highs.

We think the bulls won the day.*****

15 October 2008

Thoughts

Retail Sales were down 1.2% in
September. PPI was down 0.5% and core PPI was up 0.5%. JP Morgan and Coke
reported better than earnings. Asian
markets were lower except Japan up 1%. European bourse indexes are lower by 2%.
*****

Stocks are going to open 2% lower
on the lousy retail sales numbers and general principles. Investors
Intelligence
had 22% bulls and 53% bears last week. That is low on the bullish side as we
have seen.*****

The major European bourse indexes
closed down 7% on the day.
*****

Oil ended down
$4 at $74.50. Gold gained $11 to $850. Treasuries were firm with the two-year
at 1.62% and the ten-year at 4%.
*****

We added stocks that we already
own to accounts today with the markets down 5%. The Stocks we are buying and
own are good values at these prices.
*****

This is what a bottoming market during a panic looks
like, shades of 1987.Good values are created in panics.

The DJIA lost 733 to end at 8577.
The S&P 500 was down 90 at 907 and the NAZZ tanked 150 to 1620.

Breadth was 8/1 negative at the
close and volume was lighter than the last few days at 6.5 billion on the NYSE
and only 2.5 billion on the NAZZ.

There were about a combined 420
new lows and 55 new highs.

The bears won the day.*****

14 October 2008

Thoughts

Be greedy when others
are fearful and fearful when others are greedy

*****

Get over it. That is the way we feel about all the
gibberish being spouted over the Treasury investing in U.S. banks. The
Government and Business have been in bed for 200 years and this investment is
only formal action on the arrangement. And the taxpayers have a chance to make
some money with dividends and warrants. Taxpayers are now in the banks shoes
where the Treasury borrows at a low price and lends at a higher price. We don’t
put it past the free market folks in the White House who created the problem to
screw this up like they did Iraq and New Orleans. The free markets exist as an
idea in the minds of academics and polemics. In realty with tariffs and tax
breaks and subsidies the free markets have never existed. The wild wooly days
of Wall Street in the 1920s led to reforms that worked for 70 years until the
Contract on America folks decided they had a better way. Welcome to the better
way.*****

The ammo measures were up 11%
yesterday and look to be up 3% or more at the opening. Those gains represent a
20% move from the bottom on Friday morning and would suggest a bit of caution
for today. Crash scenarios usually invoke a retracement of most of the gain but
given the underperformance of the big boys and girls and the fact that many
raised cash last week selling in a panic into the panic we don’t know what to
expect. We like what we own and may do some selling around the edges.
*****

Intel reports tonight and that will set a tone for tech stocks.
*****

Japan, which was closed on Monday
for a holiday, was up 14% overnight while the rest of Asia was mixed after the
large gains on Monday. European bourses are continuing their celebration with
gains of 3% to 5% at midday. Oil is up a couple of dollars with an $80 handle
and Gold is up $6 at $848 as the trading day begins.
*****

An hour into the trading day the
major measures are negative after being 3% higher at the opening. The traders
are taking profits and the shorts are back.
*****

We haven’t had much luck with the bank stocks and so we
are selling the Large Bank ETF for a small profit after being down 25% on it
last week. So that is a victory of sorts. That sale raises a nice chunk of cash
for us which seem prudent. We also sold Merck for a scratch after being down
20% on it last week. We also sold Boston
Scientific and Schering Plough for
small gains. Drug stocks are anchovies for us.

With the Merck money we are buying an equal amount of a
package of cash rich low priced tech stocks to hold. They are Alcatel Lucent, Sun Micro, JDSU, Tellabs, Ericsson, and RF Micro.

We also repurchased NVDIA.
We have been in and out of these shares but since we are on the other side of
the panic we feel a bit better holding this cash rich company.*****

European bourse indexes closed 2%
to 3% higher.
*****

In the contra hour (the hour
before the closings hour) the major measures have dropped 2% with the DJIA down
225 points. That is a 6% plus swing since this morning and reminds of the days
after the 1987 Crash.
*****

The full Hunter’s Moon occurs on the close at 3pm today.*****

$55 billion was removed form
mutual funds last week and there was a story in the WSJ about ‘smart’
hedge fund managers who sold last week. Well, from the action
last week it was obvious that there was a lot of selling going on. That is what
makes a panic.
*****

Oil was down $1.84 at $79.50.
Gold was up $3 at $840.
*****

The DJIA dropped 76 to 9310. The
S&P 500 was down 5 to 998 and the NAZZ lost 65 to 1779. Treasuries were
lower with the ten year back over 4%.

Breadth was 5/4 positive on the
NYSE and 2/1 negative on the NAZZ and volume was brisk at 8 billion. Volume
today on the pullback was relatively less than on the rally holiday yesterday.
That is a positive.

There were about 70 combined new
highs and about 255 combined new lows.

Today was healthy for the bullish case and gave hope to
the bears.*****

13 October 2008

Thoughts

The dead cats bounced.
Hopefully there are eight lives left.*****

10 October 2008

Thoughts

Asian markets were down 3% and
more and European bourses were all down 8% overnight. Russia, Indonesian, and
about ten other countries stopped trading. That was catch up to the U.S.
markets of yesterday. Gold is up $25 and Oil is down another $6 at $80.

The DJIA opened down 700 and
rallied back to even before moving lower as Bush began to speak.

We are adding a few more shares
in our belief that the Crash has been occurring for the past week. The S&P 500
is down 46% this year and 56% since its high a year ago. We don’t know where
the bottom is but we do know that there are real values in the markets. This is
one of those times it will pay to be an investor instead of trader.

We have been waiting for the Crash and it is here and we
have been and are investing.*****

GE announced in line earnings but it didn’t matter.
*****

We did more buying today when the DJIA was down 500
points.*****

At the close Oil was down $6 to
$80; Gold dropped $40 to $848 which represents a $70 swing today. Treasuries
weakened and European bourse indexes close down 5% to 9%.
*****

The DJIA was down 700 points at the opening rallied to
down 89 before Bush spoke then moved between down 200 to down 500 until the
final hour. In the final hour the DJIA rallied to up 250 and down 100 and in
between three times finally ending down on the day. The range was 1000 points
or 12%. This is one of the few times down 100 on the DJIA is a victory for the
bulls.

At the close the DJIA was down
128 to 8450, the S&P 500 dropped 9 to 900 and the NAZZ was up 4 at 1650.

Breadth was 2/1 negative at the
bell and NYSE volume was 11.5 billion while NAZZ volume was 4 billion.

There were 2631 new lows on the
NYSE and 15 new highs and 1710 new lows on the NAZZ with 7 new highs.

Today was a draw while the week saw a 20% drop in the major
stock measures.
*****

9 October 2008

Thoughts after the close

The DJIA closed down 700 points at the close. We
continued our buying today because the companies we are purchasing are at
investment prices. For example a few months ago we were trading GE in the $30
range and we bought shares today at$19.25 with a 5% plus yield. We were trading
J Crew at $40 in the May and today we bought shares at $22.50 which is lower
than it has ever traded as a public company.

The DJIA is down
20% this week and almost 50% from its high a year ago. Maybe this is the Crash. This selling will eventually
end and the end will be sooner than later. Remember in 1987 the Crash was the
bottom and very few folks bought it. And then it was over. In 1990 the markets
sold down into mid October and then it was over. Even in 1974 the DJIA made its
low in October. This selling will pass.

The major market
measures are
down 40% in a year and the Bailout plan will work over time. The last 15% of
the down move has been created by forced liquidation and not investment
selling. The companies we own and we are adding to are stocks that we have
traded over the years that are at good value levels. That doesn’t mean that
they won’t get cheaper but after flailing all week and doing a lot of reading
and pondering we are going to buy a few more stocks today to add to those we
have settled on as good investments.

We mentioned yesterday that there could be a crash.
Stocks are down 40% and Crashes never happen off the top. Our thought process
has suggests we ignore the media mania and follow our instincts. Even if we are
wrong over the short term we will be OK in the long term. And our instincts
over the last year have been correct. And that is why we are buying stocks to
hold.

We think the Treasury and Fed will go to fair value accounting.
Currently, insurance companies and banks have to mark their portfolios to
market value instead of a fair value which means what the asset would be worth
if held to maturity. We think that a change in that rule is imminent and that
is why the SEC allowed the short sale rule to expire. Fair value accounting
would help financial balance sheets immensely.

Moreover the Treasury says it has the authority to invest
in banks. Investing as opposed to loaning money would expand bank lending
ability by 8 times X rather than 1 time if the Treasury only purchased
distressed loans. That’s because capital is the base that can support lending
8X the amount of the capital contributed. That would give the $700 billion
borrowing authority a potential effect of over $5 trillion in increased lending
ability.

This is all speculation but it gives the idea of the
potential ability of the Treasury to affect the financial markets in a positive
manner.

The market topped on our birthday last year. Maybe they
will bottom on our birthday this year. As a bonus today is also Yom Kippur.*****

Thoughts through the day

Asian markets were lower to mixed
overnight and European markets are higher to mixed at midday as the U.S. market
-except for some retailers who announced less
than same store numbers – look to rally (on the first day of renewed
ability for short selling in financials) on good news from IBM.

Gold is down $20 since the world
didn’t end last night and Oil is unchanged as are Treasuries.
*****

Walgreen has withdrawn its bid for Longs Drugs.
*****

AIG needs another $35 billion from
the Feds on top of the $86 billion already pledged. In for a dime, in for $100
billion.
*****

As the market have pulled back this morning we are adding
to Cisco and re-purchasing Whole Foods, American Eagle Outfitters, J
Crew, Starbucks and Merck. We
flipped out of certain stocks the other day because we realized they were
trading and not investment situations. The shares we are buying today are
investment stocks to hold and add to through whatever.

We are using the QQQQ (trade) money to buy additional
shares of the Money Center Bank ETF
(KBE) (investment).

We also added shares of Unisys which is a company from the past. It is
on its 30 year low right now and is the subject of fun and games by Hedge funds
which have taken large position in the company and are trying to sell it. At
less than $2 it is worth the flyer.*****

The following discussion of Whole Foods is from realmoney.com:

Hundreds of businesses have lost 50% or more of their market valuations
over the past year or two. Understand, however, that a cheap stock does not
equate to an undervalued investment opportunity, and an undervalued business is
not necessarily characterized by a cheap stock price. A wonderful example is Whole
Foods (Pricey Food, Affordable Stock)

For years, I have been a big admirer of Whole Foods. The quality of the
business of is evident the minute you step inside one of its stores. For years,
Whole Foods was the darling of Wall Street. Between 2002 and 2006, shares leapt
from $18 to nearly $80 a share, and the average annual P/E ratio was over 35.
During this time, the company traded for as high as seven times book.

Now, with consumers cutting back, the grocer has felt the pain. The
most recent quarter's results indicate choppy waters ahead. The company lost
nearly 18% of its value in a single day. Make no mistake, Whole Foods is
experiencing a very tough operating environment. Management indicated as much
when they announced that they would be reducing expansion plans for the rest of
the year. But now, with the stock at $18, the P/E is 18, and the company sells
for less than two times book value, investors are avoiding it.

Yet Whole Foods is a business with a wonderful economic moat. With the
sticky acquisition of Wild Oats behind it, Whole Foods has eliminated its biggest
competitor. Even Wal-Mart with its might, has yet to do anything to
damage the Whole Foods brand. As a value investor, what has me so excited about
Whole Foods at the current prices is simply this: to any potential buyer, Whole
Foods is worth a whole lot more than its current market value of $2.65 billion.

e exact figure, no one knows; but the company's assets, brand
recognition, market dominance and growth prospects all add up to something more
than $3 billion. Just think of how long and expensive it would be for Wal-Mart
or Kroger to build a 270-store organic food chain in some of the
country's top real estate locations -- and then spending the marketing dollars
to achieve the image and recognition that Whole Foods has. It won't happen for
$2.65 billion. In the organic and natural foods industry, Whole Foods is the Coca-Cola
(: it owns the market.

Markets environments like today reward the investor who can anticipate
what is to come. Under a tough consumer environment, Whole Food's pricier fare
looks like a suckers bet. Yet, many of its customers view their food habits as
a lifestyle necessity, and are more tolerant of price changes. Besides, if
conventional food prices continue to rise, the value of natural foods may look
better.

If you are expecting results next month or next quarter, you might not
like the ones you get. But if you can analyze a business through the looking
glass of a multi-year period, now is a good time to look at some quality
unpopular businesses. As famed investor Shelby Davis aptly remarked, "You
make your best money in bear markets, you just don't know it at the time."

*****

Surprise, the short sellers are
back in the financials. Duh, guess they aren’t patriotic and are only
interested in making money.
*****

We have our intrepid hounds Pooper and Luna out on patrol today:

STAMFORD, Conn. — A
60-year-old Stamford man is charged with threatening to blow up a downtown
bank, angry over the performance of his investment accounts. Police say Stephen Montalvo was charged
Tuesday with committing an act of terrorism and first-degree threatening.

Police say Montalvo entered a local branch of a well-known national
bank, then told employees he would blow it up and kill everyone inside because
he was unhappy with his investment accounts. Police would not name the bank,
citing the ongoing investigation. The FBI's counter-terrorism task force is
involved in the case, a police spokesman said. Montalvo was held on $150,000
bond for arraignment Wednesday in Stamford Superior Court. Information was not
immediately available on whether he had an attorney.

*****

European bourses are closing 1%
to 3% lower. Gold was up $10 at $909 and Oil dropped $4 to $84.25.
*****

The DJIA closed down 680 at 8580.
The S&P 500 lost 75 to 910 and the NAZZ dropped 95 to 1645.

Breadth was 11/1 negative and
volume as active at 8 billion on the NYSE.

There were 2800 new lows and 13
new highs.

The bears
remain in control.

*****

8 October 2008

Thoughts

Asian Stock markets were down 5%
to 10% around the world last night and European bourse indexes are of 3% to 4%
this morning. U.S. futures are indicating down 2% opening. Gold is up $20 and
Oil is down $2. Treasuries have a bid.

Japan was down 9%; trading was
stopped in Indonesia down 10% and Russia lost 11%.

This collapse is creating great
buying opportunities but the need for cash right now suggests pulling in our
horns. We will survive and prosper.
*****

We misspoke that Yom Kippur was
the 7th when it is tomorrow the 9th.
*****

At 6am the Fed cut the discount
rate by .50%. European Central Banks followed suit cutting their rates. Futures
rallied from down 300 on the DJIA and are up 100 now.
*****

Last night we relived 1987 and
this week looks like a repeat of the week before the Monday Crash. But there
are three more days to go and anything can occur.

In 1987, the Dow peaked in the
summer at 2,722. It trended modestly downward until mid-October. On the Tuesday
before the crash, the Dow was at 2,508. It lost about 9% on Wednesday,
Thursday, and Friday before dropping 22% on Black Monday for a cumulative
decline of 31%. Black Monday marked the low although there was a retest in
early December which held just above the low. From the summer high, the decline
was 36%.

In 2008, the high for the market
was on the first trading day. After a rough start and a second big decline in
March, the market rallied and reached a high of 13,028 on May 19. The latest
decline started after back-to-back rallies culminating on September 15th with
the Dow at 11,388. The decline since September 15th has reached 17% in the Dow
and 21% for the S&P 500. Since the May high, the Dow is down 27%. Since the
high October 2007 the DJIA is down 37%.
*****

The Drop from the top is equal to
the Crash of 1987 and that is why we have been buying this week. But the better
model for this may turn out to be 1974 when the markets dropped 60%.
*****

About 75.5 million U.S.
households own the homes they live in. After a housing slump that has pushed
values down 30% in some areas, roughly 12 million households, or 16%, owe more
than their homes are worth, according to Moody's Economy.com.

The comparable figures were
roughly 4% under water in 2006 and 6% last year, says the firm's chief
economist, Mark Zandi, who adds that "it is very possible that there will
ultimately be more homeowners under water in this period than any time in our
history."

Among people who bought within
the past five years, it's worse: 29% are under water on their mortgages,
according to an estimate by real-estate Web site Zillow.com.
*****

Investors Intelligence has 25 bulls and 53% bears. It is time for a
rally.
*****

From Bloomberg:

Citigroup
Inc.'s Tobias
Levkovich cut his Standard & Poor's 500 Index forecast by 19
percent to 1,200, turning him from the most bullish U.S. equity strategist
tracked by Bloomberg to the most bearish.

The new projection represents a
20 percent gain from today's close of 996.23 through the end of the year.
Levkovich, 47, said the credit crisis and a slowing global economy made his
previous forecast of 1,475 unreachable. The S&P 500 has plunged 36 percent
since its October 2007 record under the weight of almost $600 billion in
subprime-related losses at banks and an increase in borrowing costs.

Levkovich is the third of nine
strategists to cut estimates since Lehman
Brothers Holdings Inc. filed for bankruptcy on Sept. 15, according
to data compiled by Bloomberg. On average, the analysts project the S&P 500
will end the year at 1,344. That would require a fourth-quarter advance of 15
percent, the steepest quarterly gain since the final three months of 1998.
*****

At 7:45am the major measures were
up 2%. Then there was a break and in fifteen minutes the futures on the major
stock measures went negative as BankAmerica broke the price at which it sold
$10 billion in shares last night. The pricing on the shares was $22 and the
shares are now trading at $18. That is a real negative.
*****

Stocks opened higher then traded
down 100 points on the first fifteen minutes of trading. The DJIA rallied to
plus 150 points at 9am.

On the rally we
are selling our index stocks and speculative techs stocks. We lost our stomach
for risk.

We did add money
to AT&T and Verizon, both of which yield 6%. And we began building
positions in Walgreen and Sony.

A 500 points straight down was needed. Very
few bottoms have been made on a Wednesday and so we are looking to next Tuesday
in keeping with our Crash scenario.
*****

Reinstating the uptick rule
tonight when the short sale restrictions are lifted would help the markets. One
reason the SEC doesn’t want to do it is that the big boys and girls say they
will have to re-tool their computers and that the software update will be
expensive. We kid you not.
*****

At 11:30am there are over 3000
new lows and volume is on pace to exceed 10 billion shares on the NYSE. The
fear of buying is exacerbated the fact that trades don’t know what is going to
happen when shorting comes back tomorrow.

We have read that folks who want
to protect holdings ahead of the reinstatement of short selling are shorting
the indexes in order to protect their other stock positions and to also put on
pseudo financial shorts. Someone has probably worked out shorting the indexes
and buying all the stocks in the index that are not financial. Whatever, the
computer jockeys are in control of the markets and good ole wishful investors
like us continue to be scared out of stocks.
*****

Oil closed down 40 pennies at
$89.66. Gold was up $23 to $923. Treasuries dropped at the two-year moved back
to at 1.60% and the ten-year at 3.73%.

European bourse closed down but
off their lows of the day.
*****

At 2:20pm the DJIA was up 125
points and the S&P 500 was up 22 points. Both closed lower on the day. It
was that kind of day. The up and down movement today in the major measures and
many stocks well exceeded 10%. Just like the week before the Crash in 1987.
*****

The DJIA closed down 190 points
at 9256. The S&P 500 dropped 11 points to 985. The NAZZ dropped 150 to
1740.

Breadth was 2/1 negative and
volume was active with almost 9 billion the NYSE and 3.4 billion on the NAZZ.

There were about a combined 3195 new lows (2022 on the NYSE). There
were about 20 new highs on the NYSE.

The bears are still in control.*****

7 October 2008

Thoughts

Sell Rosh Hashanah
(September 30); buy Yom Kippur (October 7).*****

As we were dressing this morning we were thinking of the
brilliant idea of a few years ago to allow individuals buy stocks with their
Social Security money. Actually, now would be a good time for the government to
stick a large portion of the ephemeral Social Security Trust Fund into the
stock markets. But folks and politicians only want to buy when stocks are high,
not when they are low.*****

The classic bottom was delayed
yesterday with the last hour rally off the lows. Ideally the bottom would have
come today as stocks continued yesterday’s sell off in the morning and then
rallied big-time in the afternoon. Since that didn’t occur old timers are
looking for another collapse and then finally a
recovery. Our take is that the markets have been so perverse this year that
yesterday’s action may have been a bottom. The huge new low number and terrible
breadth certainly suggested a panic. Time will tell.

The high was made on our birthday
October 9 last year so maybe the low will occur on that day this year. This
year is our Medicare eligible birthday so even if the low isn’t made we rejoice
to join our elders with real health insurance. Hopefully everyone will soon be
eligible for the health insurance we now have.

Yesterday’s washout saw 3000
combined new lows.

The huge number of new lows
number exceeded the July 15 new lows by over 1000 and demonstrates the fear now
in the markets. There are stocks at attractive levels and once the panic
subsides the markets should begin building a base. We did see this coming and
we have decided that at the price levels on the stocks we are buying the risk
is worth the potential reward. Of course we will trade some issues going
forward but we plan on holding many of them for the longer term. The longer
term for us is a week to....
*****

BankAmerica is raising $10
billion and cutting its dividend in half.
*****

Asian markets were lower
overnight and rallied into their close but ended mostly lower. European bourses
are mixed. Oil is up $3 and Gold is up $20. Treasuries are firm.
*****

The Fed announced this morning
that it will begin purchasing commercial paper and that has pumped stocks
higher.
*****

After opening 100 points higher
the DJIA is now negative at 9am. Hold on.
*****

With the DJIA down 200 points at 1pm we added some Money Center Bank ETF and more Financials SPDRs. We also repurchased EMC and added to CBS.*****

Oil gained $2.34 to $90.15. Gold
was up $20 to $886. European bourse indexes closed mixed with more down than up
and the downs a greater percent down than the ups were up. The euro was 1.36.
Treasuries were well bid.
*****

Morgan Stanley is getting crushed down 25% as rumors circulate that
Mitsubishi has pulled out of its
deal to fund $ 9 billion to MS. And BankAmerica
is down 25% as it tries to price $10 billion of common stock. Traders are
worried that because the Merrill/ BAC merger deal is all stock that when the
short sale bans are removed on the 19th that BAC stocks will sink as arbs buy
Merrill and short BAC.

The Fed will change the rules as
they have in the past month.
*****

The DJIA dropped the 500 it rallied in the last hour
yesterday and so there is a set up for a large down tomorrow morning. And
then...

The DJIA lost 508 points to 9447.
The S&P 500 dropped 60 to 996 and the NAZZ crashed 1080 to 1755.

Breadth was 5/1 negative at the
bell and volume was active.

There were about a combined 1850
new lows and 15 new highs.

The bears won.
*****

6 October 2008

Thoughts

Be fearful when everybody is greedy and greedy when everybody is
fearful. (Warren Buffet)
*****

Asia was 4% and lower overnight
as are European markets at midday. Gold is up $22 and Oil is down $3 while
Treasuries have a bid.

It is going to be an interesting
day and week.
*****

Well Fargo and Citigroup
are in a lawsuit over who gets Wachovia.
Even in a panic it is all about money. And the Fed who is rescuing all three
banks with taxpayer money is not yet intervening. The lawyers are happy.
*****

Fifteen minutes into the trading
day the DJIA is down 225 points and we would guess that combined new lows
exceed 1500. The panic is building as will the margin selling and then a
tradable low will be upon us.
*****

In Brazil the
Bovespa stock index was halted for 30 minutes after it opened down 10%. Trading
in Russia had to be halted at least twice today, as their benchmark index was
down at least 14%. And banking industry in Iceland is on life support.
*****

There are 1700 new lows and 5 new
highs at 9:15am.
*****

There are now a combined 2325 new 12 month lows at
10:45am with only 5 new highs. This would signal a tradable bottom.*****

With the DJIA down 500 points and under 10000 we repurchased
the SPDR Financials in accounts at
$17.90 and added to our QQQQ, XLK.

*****

On May 15 Dryships (DRYS engages in the ownership and operation of dry bulk
carriers worldwide) was at $115. Today it is $25. That is $40 billion gone.
Mosaic, a fertilizer company, was $160 and today it is $35.
*****

3200 issues are down and 115 are
higher on the NYSE. Down volume exceeds up volume 99 to 1. There are 1550 new
lows and 2 new highs. That is selling.
*****

With the DJIA down 700 points we added shares of Cisco, Sprint, Motorola, Micron, NVDIA, New York Stock
Exchange, Bristol Myers, Broadcom, British Petroleum and Symantec to accounts. *****

Oil settled down $6.01 at $87.81.
That’s better than a tax cut if it holds. Gold gained $36 to $870. Treasuries
were strong and the euro was $1.34. European
bourse closed down 7% to 9% across the continent. Brazil was down 11% and
Mexico 7%.
*****

The DJIA was down 730 at one
point but selling pressure abated in the last hour as short covering came in
and the DJIA closed down 370 at 9960. The S&P 500 dropped 42 to 1056 and
the NAZZ lost 85 to finish at 1862.

Breadth was 30/1 negative at the
low today and fished 10/1 negative on the NYSE and volume was active at 8
billion in the NYSE and 3.5 billion on the NAZZ.

There were a
combined 2900 new lows and 9 new highs. That should mark
a tradable bottom unless the world is ending in which case it doesn’t matter.

The bears won.
*****

3 October 2008

Thoughts

*****

Wells Fargo is buying Wachovia
for $7 per share. Wachovia is nixing its deal with the FDIC and Citi to sell its banking unit to Citi.
And Common Fund Money fund shareholders still want the $9 billion that Wachovia
is stiffing them. Be that as it may, the new deal has calmed the market a bit
and even a 150,000 lost jobs Employment number has not dampened the few bulls
left who have rallied the major measures in pre-market trading.
*****

Gold is down another $15 after
being up overnight and Oil is also down $1.50 after being higher in overnight
trading. Treasuries are giving back some early morning gains. Asian stocks were
lower overnight and Europe is mixed at midday.

There are stories that the world’s Central Banks are going
to form a clearing house for mortgage stuff and that have given hope to the
bulls.*****

Wells Fargo is going to raise $20 billion in capital and decide how
large a charge to take on Wachovia’s
bad debt. We would guess that Wells is also going to throw all its home equity
loans that are under water into the mix. Special charges are great.

Citi is down $3 on the news. We don’t know what that means.
*****

The following is an example of
the worth of analysts’ recommendations:

Cummins Engine was downgraded at
Wachovia. Rating lowered to Market Perform from Market Outperform. 2008 EPS
estimates lowered to $4.92 from $4.95. Valuation range lowered to $43-$46 from
$83-$86. The shares are trading at $39.

So the
analyst lowers the earnings estimate by 3 pennies but lowers the value of the
stock by 100%. Go figure.

*****

Fifteen minutes into the trading
day or screen is green.
*****

According to the LA Times, Gov. Schwarzenegger has written to
Secy. Paulson saying that the state of California may need to borrow
as much as $7 billion from the feds within weeks because of the unavailability
of short term loans it uses to finance state government in advance of tax
monies coming in.
*****

12:25pm and the Bailout Bill
passed. The DJIA was up 250 points at the time and is now up 150 points.
*****

We bought Sprint
at $5.70 for accounts for a trade over the weekend.
*****

At 1:20pm it looks like the major
measures are in a race to the close to stay positive on the day. The DJIA is up
80 point after being 300 points higher this morning.
*****

1:35pm and the major measures are
now negative with the DJIA down 70.
*****

State Street Bank closed at $51 yesterday. The shares opened today
at $53 traded as high as $57 and just traded at $41. Scary.
*****

At 2:01 the DJIA is up 70 points.
Was the post bill passage 300 point sell off the pause that refreshes?
*****

Oil closed flat at $93.85. Gold
was down $12 at $832. European stocks closed higher and Treasuries were sold on
the stock rallies and bid on the sell offs today. The euro was $1.36.
*****

We sold Sprint when the rally failed.

The DJIA lost 160 to close at
11325. The S&P 500 dropped 15 at 1100. The NAZZ was down 30 at 1948.

Breadth was 2/1 negative and
volume was active.

There were about a combined 955
new lows and 25 new highs.

The bears won the week.*****

2 October 2008

Thoughts

The Bailout Bill has ballooned
from 3 pages of law to 400 pages in the Senate Version. Now the House gets to
work its magic.
*****

Asian markets were lower small
overnight and European bourse indexes are higher by 1%. Gold is down $20 and
Oil is down $2 in the early going. Treasuries are firm.
*****

Walgreens said its September sales at
stores open at least a year rose 4.7%. Comparable-store front-end sales
increased 1.3%, while comparable
pharmacy sales rose 6.5% in the month. Total sales rose 10% to $4.85 billion.

*****

Jobless claims for last week were
497,000 and the week before numbers were raised to 496,000.
*****

Domestic monthly sales of autos
fell below 1 million for the first time since February 1993.
*****

GE today announced that it priced an offering of 547,825,000 shares
of its common stock at $22.25 per share. To the extent that the underwriters
sell more than 547,825,000 shares of common stock, the underwriters have the
option to purchase from GE up to an additional 82,173,750 shares.
*****

Money Fund troubles: A money fund that invests cash for about 1,000
colleges and private schools suddenly froze withdrawals this week, leaving
school finance managers scrambling to make sure they have enough money for
payroll and other bills. For 34 years, colleges and schools parked cash in the
now $9.3 billion fund, which offered returns slightly above U.S.
Treasury bills. That it now might take years for the institutions to get all of
their money back shows how widely credit-market woes are reverberating beyond
Wall Street.

Monday, Wachovia,
the fund's trustee, said it was terminating the fund, liquidating its assets,
distributing the proceeds and resigning as trustee, "to ensure that all
investors would get equal treatment and that there would be orderly and equal
distributions," says Laura Fay, a Wachovia spokeswoman. That stunned some
of the colleges, which had believed they could get immediate access to the
money if needed.

Wachovia became concerned that
there might be the equivalent of a run on the fund, given recent woes with
other short-term debt funds, Ms. Fay says.

The Short Term Fund is offered by
Commonfund, a Wilton, Conn., nonprofit that advises colleges and schools on money
management. Verne O. Sedlacek, Commonfund's chief executive, says 85% of the
fund was in "high-quality" commercial paper from blue-chip issuers.
The rest is largely in securities backed by assets like mortgages -- the kind
of investments that are being especially shunned in the credit crisis. He
estimates those are selling for about 89 cents on the dollar.

The shutdown of the fund came
just as the government facilitated a sale of the bulk of Wachovia to Citigroup
Inc. Ms. Fay said that the decision on the fund didn't have any connection to
the Citi deal and that the part of Wachovia that
handled the fund isn't moving to Citigroup.

The fund's fate shows how
investors who stretched for a modestly better return by taking on what they
thought was almost no additional risk have been burned. At first, colleges
Monday were told they could redeem only 10% of their holdings, but the figure
has since risen to 33%. Schools will be able to withdraw at least 57% of their
money by year end and the rest in installments through 2011, Commonfund says.

In central Kansas, Bethany
College, a Lutheran school with 600 students and a $12.5 million budget, has
$700,000 parked in the fund. "Wall Street has hit Swensson Street,"
says Edward F. Leonard III, Bethany's president, referring to a street that
runs through the campus.

Dr. Leonard says the school has
four to six weeks to figure out whether it has enough cash for coming bills
and, if not, to identify alternatives, such as securing bank lines of credit or
tapping into the school's $25 million endowment, which he says could amount to
a "long-term hit" on the school's finances.

Commonfund says none of the
securities have defaulted, and the fund should be able to return the money to
shareholders as the securities mature. The firm says it is working with clients
to try to find them lines of credit.
*****

One half hour into the trading
day the major measures are down 2%. Could the hidden powers be pushing the
markets down to encourage a positive vote on the Bailout Bill? Oops, it is now
called the Economic Restoration Act of 2008.
*****

Principal Financial Group was $55
two weeks ago. Today it is $32. Many in the business don’t remember Principal
defaulting on annuities back in the 1980s. We do. Most of the insurance stocks
are beginning to blow up (MetLife is
down $8 or 25%) as the hedgies realize that the insurance companies have huge
bond and CDO portfolios in which premiums are invested to match future
liabilities. The House had better stop talking and begin voting.
*****

And the big boys and girls aren’t as smart as they thought they were.
From the WSJ:

The latest wave of financial turmoil has crippled $27 billion
London-based investment fund Sigma Finance Corp., raising concerns that a messy sale of its assets could weigh on
wobbly markets.

In a sign of the repercussions of last month's demise of securities
firm ,Lehman,Sigma faced imminent
liquidation Wednesday after a drop in the value of its investments, which
included Lehman debt, forced it to default on its borrowing agreements.

The default will likely leave investors in some $6 billion of Sigma's
own debt holding paper worth as little as 15 cents on the dollar, and allows
banks that lent to Sigma to sell some
$25 billion in collateral, consisting largely of bank-issued bonds.

If the banks sell, they could worsen the pain in credit markets, which
have suffered in recent weeks on concerns that banks and funds will be unable
to honor their obligations. "This doesn't help," said Howard Simons,
a bond strategist at Bianco Research in Chicago. "The lending markets that
banks rely on were already rattled before this."

Sigma's lenders could choose to keep the fund's souring assets, rather
than sell into a weak market. In that case, they could face a total of some $2
billion in write-downs, according to a report from Citigroup Inc. On Tuesday,
at least three banks were circulating lists of Sigma assets to potential buyers to get a sense of what they would be worth,
people familiar with the matter say.

An official at Gordian Knot Ltd.,
which runs Sigma, declined to comment. On its Web site, Sigma said its board had decided to cease trading
and "is expecting the appointment of a receiver."

*****

Last year, C.E.O.’s got an average of 344 times the wages
of the typical worker.

*****

European markets closed 2% and
more lower.
*****

We bought SPDR
Technology (XLK) in accounts today.

*****

At noon the DJIA is down 300
points and the S&P 500 is off 35 at
1125. Our guru has S&P 1080 or 40 more points as the bounce
price.
*****

Mosaic, a phosphate and potash fertilizer company, is down $25
today to $43. Its high this year was $163. U.S.
Steel which made a high of $196 five months ago is now at $65. Momentum
stocks are crashing as fast as the banks did. Maybe the SEC will put them on the
no short sale list tomorrow.
*****

JP Morgan, US Bank, and Well
Fargo Bank arethe new momentum
stocks since they can’t be shorted. Wells Fargo is at its all time high, JPM is
only 10% below and USB is also on its high. And the earnings of all three will
be half or less of what they were last year.
*****

The giant secondary of GE is 548 million shares at $22.25 or
$12 billion. That $12 billion is cash that is not going to support other
stocks. The other side of that trade is GE's treasury which means the money is
being taken out of the stock market. Also index funds have to buy GE since GE
will have more shares outstanding and thus a larger weighting in indexes.Index funds need to sell shares of other
stocks because the increased weighting of GE decreases the weighting of other
companies. The money used to buy GE shares to increase the weighting of GE is
coming from selling other stocks and is a drag on the markets for today.

Reports are that 60 million
shares need to be bought to reweight GE in index funds wish a corresponding
dollar amount of other stocks ($1.3 billion) for sale.
*****

Railroad stocks are down 15%
today as the mo-mo folks exit and the short sellers take over.
*****

Corn is half the price it was a few months ago and Beans are down 40% from their highs. We
sure wouldn’t want to own an ethanol plant right now. John Deere was $96 in May and today it is $39.
*****

Oil ended down $5 at $93. Gold
dropped $45 to $842. Treasuries were well bid and the euro was $1.38.
*****

The DJIA dropped 350 points to
10480. The S&P 500 was down 48 to 1113 and the NAZZ lost 92 to 1976.

Breadth was 5/1 negative and
volume was active.

There were about a combined 1020
new lows and 20 new highs.

The bears won the day.

Tomorrow we will either
have a key reversal day with a big down in the morning and then a close higher
in the afternoon or we will set up for a Monday Crash. That’s not cheery but it
is our best guess.

And to our clients
we remind them that we survived and prospered after the Crash and will again.
We have twice the cash as we had for the 1987 Crash and Crashes present great
buying opportunities for the longer term.

*****

1 October 2008

Thoughts

GE is down $2 today on news that
the cost of GE Credit Default Swaps (a bet that GE will default) have risen to $625,000
per $10 million for protection for one year from $375,000 per $10 million
yesterday. This is how bear raids on companies are done now since the big boys
and girls can’t short the common stock. Anecdotal news reports that a large
hedge fund defaulted on a repo with JP Morgan and that JP Morgan is selling GE
Credit bonds and notes that were collateral for the repos and that selling has
scared the markets into thinking that GE is in Trouble.

We are using the drop to re-establish a holding in GE
which has a 5% yield. The company gave a good presentation the other day and we
listened and were convinced that as long as they were telling the truth there is
no danger of default. We are going with our gut here.*****

We also reestablished positions in Verizon and AT&T
below where we sold last week because we want to own a few more shares of solid
companies as the market goes about trying to form an intermediate bottom. The
danger certainly is not past but the 5% yields on both stocks keep enticing us
back in.

AT&T and Verizon are down today reflecting the market
impact of the following story from Dow Jones:

Even
telecommunications giant AT&T Inc. (T) isn't immune to the credit crunch. Chairman
and Chief Executive Randall Stephenson acknowledged the increased difficulty in
accessing commercial paper, or short-term loans used to fund everyday expenses
like paying staff. He made the comments to the Associated Press following the
opening of a call center in Goldsboro, N.C. "It's loosened up a bit, but
it's day-to-day right now," he said. "I mean literally it's
day-to-day in terms of what our access to the capital markets look like." AT&T
spokesman Michael Coe later told Dow Jones Newswires that the comments referred
to the credit environment last week following the collapse of Lehman Brothers
(LEHMQ), when it became unusually tough to access the credit markets. Since
then, the environment has improved." "There were a couple of days
last week when access was limited in commercial paper," Coe said. "We
have full and ready access and getting reasonable rates." Coe noted that
AT&T had the highest available short-term credit rating at "A1
P-1." The company has $8.5 billion in commercial paper balances at the end
of the second quarter, and has among the highest overall credit ratings in the
telco industry. Stephenson's comments reflect the broader problem of companies
with restricted access to capital. As the markets tighten up with higher
interest rates, companies will be forced to tap their credit facilities, which
also weigh on the banks. AT&T has two credit facilities for $13 billion for
emergencies. While the Dallas telco is downplaying the effects, Wall Street is
concerned. "While these issues with short-term financing do not appear to
place the company in any danger, they do suggest that AT&T, and the rest of
the sector, face a higher cost of debt as we look into 2009," said John
Hodulik, an analyst at UBS. Stephenson told the AP that the company would be
"guarded" and "cautious" in hiring and capital spending.
Telco equipment companies have already reported lower spending by their
customers; they are likely to endure further hardships for the coming months.*****

Asian markets were up overnight
as are European markets at midday. Oil is now down $4 and Gold is up $10 an
hour into the trading day. Treasuries have a bid as the major stock measures
are all down about 1%.
*****

Investors’ Intelligence showed a
drop in bulls to 33% and a rise in bears to 47% in the latest week which did
not include the 777 point drop in the DJIA.
*****

The NAZZ has declared that there
were bogus trades in Google at the close yesterday and has raised the closing
price to $400 from $390 and canceled the lower trades. And the street wonders why folks are cynical.
*****

We also added share of the NAZZ 100 (QQQQ) to accounts and are adding more shares of the Federated Max Cap (mimics the S&P 500)
FISPX fund to our very large accounts. We are buying the QQQQ and the FISPX
to own not to trade.*****

Charlie Gasparino, a reporter,
was on CNBC an hour ago saying that the SEC was going to exempt folks wanting
to short convertible preferred stocks from the short sales rule. We puzzled
over his comments because he said the SEC was going to do this so that
companies could sell newly issued convertible preferred shares. That made not
sense to us but then a lot of gibberish on CNBC makes no sense.

Now we are hearing the
explanation that Gasparino should have said that traders can short common
shares against a convertible preferred offering. That makes sense.

The moral is to take what
reporters say with several gains of salt.
*****

Buffet is buying
$3 billion GE perpetual preferredand getting warrants to buy stocks
at $22.50. GE is going to sell $12 billion of common shares. Those are shares
that GE bought in at an average $13 higher than the present price and shows how
stupid common share buybacks rather than dividend raises are for shareholders.
But fear not we are certain that the exercise prices on management options will
soon be adjusted downward.

Here is the release:

GE today announced plans to offer at least $12 billion of common stock
to the public. The underwriters will have a 30-day option to purchase shares
representing an additional 15%of the offering amount from GE to cover over
allotments, if any. The offering is expected to be priced prior to tomorrow’s
market open in the U.S. In addition; GE
announced that it has reached agreement to sell $3 billion of perpetual
preferred stock in a private offering to Berkshire Hathaway, Inc. The perpetual
preferred stock has a dividend of 10% and is callable after three years at a
10% premium. In conjunction with this offering, Berkshire Hathaway will also
receive warrants to purchase $3 billion of common stock with a strike price of
$22.25 per share, which is exercisable at any time for a five-year term.

Berkshire Hathaway Chairman and CEO Warren Buffett said, “GE is the
symbol of American business to the world. I have been a friend and admirer of
GE and its leaders for decades. They have strong global brands and businesses
with which I am quite familiar. I am confident that GE will continue to be
successful in the years to come.”

GE CEO Jeff Immelt said, “This action does two things for GE investors.
First, it enhances our flexibility and allows us to execute on our liquidity
plan even faster. Second, it gives us the opportunity to play offense in this
market should conditions allow. In addition, we remain committed to the Triple
A rating and in the recent market volatility, we continue to successfully meet
our commercial paper needs.

“The economic environment remains volatile,” Immelt said. “However, the
company’s performance remains on track with the earnings guidance we provided
last week for 2008, including third quarter financial services earnings of
approximately $2 billion and industrial earnings growth of between 10 and 15
percent, excluding our Consumer & Industrial business.”

*****

GM sales were down 16% in
September, Toyota’s were down 30%
and Ford’s were down 35%. Ouch.
*****

Oil dropped $2 to $98.65. Gold
was down $1 at $879. European bourses were mixed at the bell. And the euro was
$1.40.
*****

The DJIA closed down 15 points at
10835. The S&P 500 was down 5 points at 1161 and the NAZZ dropped 22 to
2070.

Breadth was 5/4 negative on the
NYSE and 3/2 negative on the NAZZ and volume 6 billion on the NYSE.

There were about 25 combined new
highs and about 425 combined new lows.

This site contains copyrighted material the use of which has not always been specifically
authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental,
political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any
such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107,
the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for
research and educational purposes. For more information go to:
http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use
copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

Website Information

For those folks who have accounts with us, you may now go to:
https://eview.mesirowfinancial.com
and fill out the account information and view your accounts online. If you
have trouble filling out the form, or in getting online, call and we will
help you with the process. NASD regulations require the eview
site to be secure. Thus your password must be changed every ninety days.
You will be prompted to make this change when needed.

Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you
our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.

The factual statements herein have been taken from sources we believe to be reliable but such statements
are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one
or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may
have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase
or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.